The WACC of Servizi Italia SpA (SRI.MI) is 6.4%.
| Range | Selected | |
| Cost of equity | 8.90% - 12.10% | 10.50% |
| Tax rate | 12.20% - 39.70% | 25.95% |
| Cost of debt | 4.00% - 7.30% | 5.65% |
| WACC | 5.5% - 7.2% | 6.4% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 0.63 | 0.8 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.90% | 12.10% |
| Tax rate | 12.20% | 39.70% |
| Debt/Equity ratio | 1.73 | 1.73 |
| Cost of debt | 4.00% | 7.30% |
| After-tax WACC | 5.5% | 7.2% |
| Selected WACC | 6.4% | |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for SRI.MI:
cost_of_equity (10.50%) = risk_free_rate (3.95%) + equity_risk_premium (8.80%) * adjusted_beta (0.63) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.